In re Universal Service Fund Telephone Billing

• Decision Date: 19 December 2002
• Docket Number: Nos. 02-MD-1468.,s. 02-MD-1468.
• Citation: 247 F.Supp.2d 1215
• Parties: In re UNIVERSAL SERVICE FUND TELEPHONE BILLING PRATICES LITIGATION. Myhre v. AT & T, No. 02-CV-1583. Thomas v. AT & T, No. 02-CV-4007. Gordon v. AT & T, No. 02-CV-4032. Risher v. AT & T, No. 02-CV-2459. Benjamin v. Sprint, No. 02-CV-2458. Jordan v. Sprint, No. 02-CV-5972. Mount v. Sprint, No. 02-CV-6642. McKown and Professional Recovery Network, Inc. v. Sprint, No. 02-CV-1052.
• Court: U.S. District Court — District of Kansas

Page 1215

247 F.Supp.2d 1215

In re UNIVERSAL SERVICE FUND TELEPHONE BILLING PRATICES LITIGATION Myhre v. AT & T, No. 02-CV-1583 Thomas v. AT & T, No. 02-CV-4007 Gordon v. AT & T, No. 02-CV-4032 Risher v. AT & T, No. 02-CV-2459. Benjamin v. Sprint, No. 02-CV-2458. Jordan v. Sprint, No. 02-CV-5972. Mount v. Sprint, No. 02-CV-6642. McKown and Professional Recovery Network, Inc. v. Sprint, No. 02-CV-1052.

Nos. 02-MD-1468.

United States District Court, D. Kansas.

December 19, 2002.

COPYRIGHT MATERIAL OMITTED

Isaac L. Diel, Diel & Seelman, P.C., Prairie Village, KS, for Plaintiffs.

Christopher J. Leopold, Stinson Morrison Hecker LLP, Kansas City, MO, David

P. Murray, Willkie Farr & Gallagher, Washington, DC, Julie E. Grimaldi, Mark D. Hinderks, Stinson Morrison Hecker LLP, Overland Park, KS, Mark M. Iba, Stinson Morrison Hecker LLP, Lynn S. McCreary, Bryan Cave LLP, Kansas City, MO, Mark B. Blocker, Sidley Austin Brown & Wood, Chicago, IL, for Defendants.

Patricia C. Howard, Washington, DC, Pro se.

MEMORANDUM & ORDER

LUNGSTRUM, District Judge.

This multidistrict litigation arises out of AT & T's and Sprint's practice of charging their customers to recoup contributions they are required to make to the Universal Service Fund ("USF") program.¹ Plaintiffs, customers of AT & T and Sprint who believe the charges to be excessive and/or believe AT & T and Sprint have misrepresented the charges, brought multiple class action and individual lawsuits against AT & T and Sprint throughout the country. Many of the lawsuits were filed in state court; however, AT & T and Sprint removed nearly all of the lawsuits to federal court under 28 U.S.C. § 1441(b), asserting federal jurisdiction.

The Judicial Panel on Multidistrict Litigation transferred the cases to this court for coordinated and consolidated pretrial proceedings pursuant to 28 U.S.C. § 1407. After the transfer, this court issued Practice and Procedure order No. 2, appointing plaintiffs' co-lead counsel. Plaintiffs' coleads then filed both a first consolidated and amended class action complaint (Doc. 24) and a joint motion for remand and brief in support (Doe. 25). Certain other plaintiffs also filed motions to remand and a memorandum in support (Docs. 20, 21, 22, 29, and 88).² In total, plaintiffs seek to remand eight of the complaints³ pursuant to 28 U.S.C. § 1447(c).⁴ Each cause of action in each of the complaints is brought, on its face, under state statutory or common law. AT & T and Sprint, nonetheless, contend removal is proper under the "substantial federal-question" and "complete preemption" doctrines. More specifically, AT & T and Sprint argue that at least one claim in each of plaintiffs' complaints requires resolution of a substantial disputed question of federal law under the Federal Communications Act of 1934 ("FCA"), 47 U.S.C. § 151, et seq⁵ Alternatively, AT &amp T and Sprint argue that the FCA completely preempts plaintiffs' state law claims.

The issues have been fully briefed, and a hearing was held on November 20, 2002. After considering the parties' arguments, the court concludes that the complaints which include a facially state law claim which is premised exclusively on the notion that AT & T's and Sprint's alleged practice of charging their customers more than they are required to remit to the USF program (plus their reasonable expenses) is wrongful in fact raise substantial disputed questions of federal law under the FCA. Accordingly, such complaints—Benjamin, Risher, and McKown—do arise under federal law and were therefore properly removed from state court. On the other hand, the complaints in which at least one theory of each claim rests on AT & T's and Sprint's alleged misrepresentations regarding their recoupment of their USF contributions, but which theory does not challenge the practice itself, do not raise substantial questions of federal law under the FCA. Moreover, such claims are not completely preempted by the FCA. Accordingly, such complaints—Thomas, Jordan, Myhre, Gordon, and Mount—do not arise under federal law and therefore should be remanded to state court.

• Background

Resolution of these issues requires a close reading of the FCA and of plaintiffs' complaints. The court begins then with a brief review of the relevant sections of the FCA and then will turn to the allegations of the causes of action in each of the eight complaints in question.

A. Federal Communications Act

The FCA regulates interstate telecommunications carriers, such as AT & T and Sprint. The USF is a part of the FCA. Congress created the USF as part of the Telecommunications Act of 1996 to support telecommunications services to rural customers, under-served markets, non-profit organizations, and other entities designated by the FCC. 47 U.S.C. § 254. Section 254 sets forth the FCC's authority to administer and implement the USF program, as well as the carriers' obligations to contribute to the USF. 47 U.S.C. § 254(a)(2), (d), (g). Under FCC regulations, Sprint and AT & T (as well as other carriers) must contribute a percentage of their gross-billed interstate and international end-user revenues to the USF. 47 C.F.R. § 54.706; Federal-State Joint Board on Universal Service, CC Docket No. 96^5, Report and Order, 12 FCC Red 8776, 9205-07 (1111842-44) (1997). Each quarter, the FCC adjusts the percentage of revenues that a carrier must contribute, the "Contribution Factor," to ensure sufficient funding for the program. 47 C.F.R. § 54.709(a); Proposed Second Quarter 2002 Universal Service Contribution Factor, 17 FCC Red 4451, 4451-53 (Rel. March 8, 2002). The FCC authorizes carriers to recover their USF contributions from their customers. Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, 12 FCC Red at 9209-11 (¶¶ 851-53) (1997).

As "common carriers,⁶" AT & T and Sprint are also subject to the substantive requirements of sections 201 and 202 of the FCA. 47 U.S.C. § 201 and 202. Under section 201(b), common carriers may impose only those "charges, practices, classifications, and regulations" that are "just and reasonable." 47 U.S.C. § 201(b). Under section 202(a), common carriers are prohibited from making any "unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services" and they may not give any "undue or unreasonable preference or advantage to any particular person, class of persons, or locality." 47 U.S.C. § 202(a). The FCC has recognized that these sections apply to USF charges as well as other rates and charges imposed by carriers. See, e.g., Federal-State Joint Board on Universal Service, CC Doc. No. 96^5, Further Notice of Proposed Rulemaking and Report and Order, 17 FCC Red 3752 ¶ 95 (rel. Feb. 26, 2002).⁷

Should a common carrier "omit to do any act, matter, or thing in this chapter required to be done," section 206 dictates that the "common carrier shall be liable to the person or persons injured thereby for the full amount of damages sustained in consequence of any such violation ... together with a reasonable counsel or attorney's fee[.]" 47 U.S.C. § 206. Section 207 then explains how a party can pursue remedies for alleged injuries sustained under the preceding sections:

Any person claiming to be damaged by any common carrier subject to the provisions of this chapter may either make complaint to [the FCC] ... or may bring suit for the recovery of the damages for which such common carrier may be liable under the provisions of this chapter, in any district court of the United States of competent jurisdiction; but such person shall not have the right to pursue both such remedies.

47 U.S.C. § 207.

Finally, section 414 makes clear that the federal remedy does not negate state law claims: "Nothing in this chapter contained shall in any way abridge or alter the remedies now existing at common law or by statute, but the provisions of this chapter are in addition to such remedies." 47 U.S.C. § 414.

• Plaintiffs' Complaints

• California Complaints

Jordan, Thomas, and Myhre were originally filed in California state courts. The Jordan and Thomas complaints are very similar; they both plead private attorney general actions brought on behalf of the general public.⁸ In Jordan, the thrust of the complaint is that Sprint has represented to its customers (through billing labels, a 1-800 number, their website, and invoices) that the USF charge⁹ "is required by law and will be paid over [to the government] by Sprint in its entirety to meet a governmental obligation." These representations, according to the complaint, are false, misleading, and/or likely to deceive Sprint's long distance customers because Sprint has charged its customers significantly more in USF charges than the contribution factor (and, even more than the contribution factor plus any reasonable expenses of collecting and paying its USF contributions). Thus, the USF charge is a secret profit center that allows Sprint to charge a higher-than-advertised, and higher than represented, per-minute long distance rate.¹⁰ These misrepresentations also prevent plaintiffs from being able to compare services and rates so that they can make an informed decision in choosing a long-distance carrier.

The complaint includes two causes of action, both alleging violations of unfair competition law under California Business & Professional Code § 17200, et seq. The statute defines unfair business competition as any "unlawful, unfair or fraudulent" act or practice, as well as "unfair, deceptive, untrue or misleading advertising." The first cause of action alleges that Sprint violates the California statute by advertising and representing that its USF charge solely recoups its contribution to the USF, when in fact the charge generates significant extra revenue for Sprint. As an alternative theory, plaintiffs allege that Sprint violates the statute by effectively charging its customers a higher long distance rate than...